Mar 09 11 pm EST– March comes in like a lion and goes out like a lamb. Traders are hoping March does not come in like a bull and goes out like a bear.
On March 1, the Dow, S&P 500 and NASDAQ comp all closed at record highs, over the next 6 trading sessions the S&P declined on 4 of 6 days and had very small gains on the 2 other days.
On Thursday, the bull market celebrated its 8th year with gains of between 1bp and 8 bps in U.S indices. After 8 years, markets seem to be both tired and excited. Valuations are starting to be questioned but expectation of job growth and tax relief has few ready to sell; but an equally few are ready to jump in.
So, markets feel as though we are currently in a stalemate. Friday’s February employment report is truly the first report that will be more affected by the present administration rather than the former. It is being closely watched, and anticipation about the Feb report explains why the equities markets move this week has been muted. Investors have been calling for, and patiently waiting for, policy details. Friday’s report should give us something to digest for now.
Although the market moves this week have been narrow, news has been abundant. We have seen a new proposed health care bill, a new immigration policy effort, U.S shale production increase, a global bond rout, U.S dollar at highest levels in 2 months, South Korean President ousted from office and an EU summit all kept us busy. Monday’s Factory orders exceeded expectations, Wednesday’s ADP employment change exceeded estimated by a healthy 112K and Thursday import prices showed inflation seems to be under control.
After Friday’s employment report, I think that the next two most important events this week were: 1) WTI crude oil falling back below $50 (WTI is down 8.3% for March). This has always been a double edge sword. More money in consumers’ pocket, but decline in the energy sector is a drag on the economy and indices. 2) A largely overlooked surge in Household Net Worth, with both a positive revision to 3Q and a better than expected gain in 4Q. Simply put, more wealth equals more spending, which equals more jobs and growth. But we need to watch that inflation as well.
Looking ahead to next week investors will have plenty to digest. As this market moves more toward a dual factor market (taxes and jobs), we will be reminded of the other factors able to move the market. We get a good view on inflation with Tuesday’s PPI report for February and Wednesday CPI report for February. Wednesday’s retail sales figures will give us a clearer picture as to how much of the surge in household wealth has pushed through the economy. With recent weakness in the retailers, we will be watching the sales numbers closely. Later in the day on Wednesday, the FED will release its FOMC rate decision, in which a 25bps hike is widely expected. Fed Funds rate is actually pricing in a 100% probability of a rate increase; the accompanying comments will be of more importance than the action.
With Thursday’s February Housing Starts and building permits release we get a better idea of the health of real estate. Mild weather in February should help this number. The week concludes with Michigan sentiment reading. With the stock market near all-time highs, surge in household wealth and cheaper oil and gas prices in store, consumers should have reason to be optimistic. With the S&P 500 PE ratio continuing to creep up to 21.8, companies’ earnings need to be able to sustain these prices when 1Q earnings roll around next month, otherwise we could some profit taking on the rise.
But it all starts with Friday’s employment number.
Managing Director International Trading
Mischler Financial Group
Investment Banking | Institutional Brokerage
Larry Peruzzi is a 20 yr global trading markets veteran and brings a unique perspective to global equities market commentary via Mischler Financial Group, the securities industry’s oldest minority broker-dealer owned and operated by service-disabled veterans. Larry’s experience and best execution perspective stems from his sitting on ‘both sides of the aisle.’ For more than half of Larry’s career, he ran buy-side trading desks for Standish Mellon and thereafter, The Boston Company. In both of those roles, Larry was responsible for implementing and managing international equities trade execution. Larry’s perspectives are frequently cited by the leading financial news publishers, including The Wall Street Journal, Bloomberg LP and Reuters
Mischler End of Week Equities Market Commentary via Peruzzi’s Perch March 09 2017 end-of-week edition is distributed via email to institutional investment managers and Fortune Treasury clients of veteran-owned broker-dealer Mischler Financial Group, the investment industry’s oldest and largest minority broker-dealer owned and operated by Service-Disabled Veterans.
Peruzzi’s Perch is a weekly synopsis of Everything Equities as seen from the perch of Mischler Financial Group’s International Equities Desk. Cited by Wall Street Letter in each of 2014, 2015 and 2016 for “Best Research / Broker-Dealer”, Peruzzi’s Perch is one of four distinctive content pieces produced by Mischler Financial Group.
March-In Like a Lion..Out Like A Bull or a Bear? Mischler Equities Insight
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